Investor interest in listed investment companies (LIC) has led to an expansion in the type of assets being offered through these structures and their rapid growth in key sectors beyond Australian shares.
Listed Investment Companies and Trusts Association chief executive Ian Irvine said that while LICs had been offering actively managed portfolios of Australian shares for nearly 100 years, investor demand has led to the creation of LICs and listed investment trusts (LIT) offering access to other markets and asset types.
“There has been strong growth in the number of LICs and LITs offering investors access to global equities, Asian and emerging markets, infrastructure, alternative assets and fixed income,” Irvine said.
“While the value of Australian equity LICs grew from $30 billion to $32.5 billion (up 8 per cent), the value of global equity LICs and LITs grew from $8.5 billion to $14 billion (up 65 per cent) over the three-plus years from end of 2017 to February this year. All to meet investor demand.”
He said there had also been strong growth in fixed income LITs, which had grown from $650 million in value to over $5 billion over the period mentioned above, and they now represent 10 per cent of the LIC/LIT sector value, compared with 2 per cent at December 2017.
At the same time, Australian equities accounted for 63 per cent of the LIC/LIT sector value, down from 77 per cent, and global equities represented 28 per cent, up from 21 per cent.
Irvine noted LITs, which use a closed-end trust structure, now have a value of about $10 billion, accounting for 20 per cent of the LIC/LIT sector at the end of February 2021.
“Like other trust structures, such as ETFs (exchange-traded funds) and managed funds, LITs pass through income to investors untaxed. Because of their closed-end structure, unlike open-ended ETF or managed funds, LITs have a fixed capital base and are not forced to sell assets to meet withdrawal requests or to make income payments,” he said.
“The combination of efficiency and stability of the closed-end structure of both LICs and LITs can enhance the overall performance and reduce volatility in their portfolios.”